President Obama Outlines Chrysler's Future

by KBB.com Editors | May 1, 2009 8:08 AM

The future of Chrysler LLC became a bit clearer, following a press conference held by President Barack Obama to confirm that a partnership agreement had been reached between Fiat S.p.A. and the struggling U.S. automaker. Obama said that the Italian automaker would be providing billions of dollars worth of cutting-edge technology as well as other support to help Chrysler carry on towards a successful recovery. The linkup is expected to secure the jobs of over 30,000 current Chrysler employees and those of over 10,000 supplier employees -- as well as generate several new Fiat-based products that will feature prominently in the portfolio of cleaner and more fuel-efficient vehicles that are expected from the "New Chrysler."

As a corollary to this corporate linkup, the president also announced that Chrysler would deal with clearing out its remaining debt issues by filing for Chapter 11 reorganization, an occurrence that took place mere minutes after Obama finished speaking. That part of the process became necessary after several stakeholders -- primarily banks and hedge funds that have not required or accepted government bailout money -- refused to accept the financial restructuring terms that had been agreed to by Chrysler's key creditors, including the investment bank of J.P. Morgan, parent company Cerberus, all of whom have been the beneficiaries of bailout funds. The members of the United Auto Workers/Canadian Auto Workers unions got a separate deal that many consider more favorable than the deal given Chrysler's secured creditors.

In commenting on this unprecedented bankruptcy of an American carmaker, the President indicated that the groundwork had already been laid to make sure the process would be "quick, efficient and controlled." During the transition period, the U.S. government will provide funding to ensure that Chrysler's day-to-day operations can continue without interruption. However, the automaker indicated that most of its manufacturing operations will be "temporarily idled" on May 4 and resume when the Chapter 11 process is completed. The administration's auto task force hopes that will take place within 30-60 days.

The President also said that Cerberus-controlled GMAC (General Motors Acceptance Corporation) would serve as the primary lender of record for Chrysler (whose own captive lending Chrysler Financial group will be folded into GMAC) to help finance new car purchases and provide dealers with adequate money to finance their inventories. In this instance the government also plans to provide GMAC with additional funding, as necessary.

A supplemental statement by Chrysler Chairman and CEO Robert Nardelli outlined the framework of what he characterized as a new global strategic alliance with Fiat. In addition to allowing each partner to optimize the leveraging potential in both manufacturing and supplier areas, he said that Chrysler also will produce Fiat powertrains and components at its manufacturing sites in the U.S.

"This partnership transforms Chrysler into a vibrant new company with a wealth of strategic advantages," said Nardelli. It enables us to better serve our customers and dealers with a broader and more competitive line-up of environmentally friendly, fuel-efficient high-quality vehicles. Benefits to the new company include access to exciting products that complement our current portfolio, technology cooperation and stronger global distribution."